Merged AWM will lift margins 33% say Select directors

A merged Australian Wealth Management (AWM) and Select Managed Funds, to be voted on by Select shareholders on May 18, will obtain an immediate increase in operating margins due to cost savings, according to the ‘Scheme Booklet’ sent to shareholders last week.

Select directors say, in the 244-page booklet, that the percentage of net operating revenue eaten up by costs will decline from 70 per cent to 60 per cent over the course of the 2006 financial year (ending September 30). They say the EBIT (earnings before interest and tax) margin will jump from 26 per cent to 35 per cent, a rise of more than 33 per cent. Net profit in the year to September is forecast at $40.1 million, compared with $25.4 million last year for the separate companies combined. Net operating revenue is forecast to total $153.7 million, against $137.4 million last year, but costs are expected to be steady at $95.9 million, against $96.6 million last year. About 20 per cent of the earnings will come from AWM’s trust business, with the remainder from both companies’ financial planning, funds management and platform operations. The merged company, to be called Australian Wealth Management, will have about $60 million in cash for M&A activity. Directors say: “Select has demonstrated its ability to capitalise upon industry consolidation and has undertaken a number of strategic acquisitions which have been successfully integrated and added significant value to its business. “The merged entity is expected to seek acquisition opportunities across the wealth management industry.” They say that no alternative approaches have been received following the announcement of the proposed merger in late January and directors will be accepting the offer for their own shares. AWM shareholders, who are offering the new shares for the merger, do not require a vote and are ineligible to vote at the Select shareholders meeting. Two executive directors, Chris Kelaher as managing director and Ian Griffiths, each holds 5 per cent of Select shares. Kelaher will become managing director of the merged AWM.